While October is typically a slow month for Chinese credit, growth in key gauges such as total social financing and money supply fell to record lows, reinforcing views that policymakers will need to step up efforts to revive flagging investment.

The weaker trend also suggested overall credit conditions in China tightened last month despite recent easing in monetary policy, including moves by the central bank to bring down market interest rates and four cuts in banks’ reserve requirements so far this year.

“October credit data is weaker than expected,” said Luo Yunfeng, an analyst at Merchants Securities in Beijing.

However, Luo believes the room for further policy easing is limited as Beijing remains concerned about controlling debt and financial risks, which were fuelled by past spending binges.

Analysts polled by Reuters had predicted new loans of 862 billion yuan in October, down from 1.38 trillion yuan in September but well ahead of seasonal norms as lenders began to heed regulators’ calls to support smaller firms hit by the economic slowdown, especially those in the private sector.

However, Chinese banks are wary of a fresh spike in bad loans after years of pressure from regulators to reduce riskier lending. Chinese bank shares tumbled on Friday on fears they will be saddled with more non-performing loans.

Corporate loans tumbled to 150.3 billion yuan in October from 677.2 billion yuan a month earlier.

HOUSEHOLD DEBT CLIMBING

Household loans accounted for 80.9 percent of total new loans in October, versus 54.7 percent in the preceding month, according to Reuters’ calculations based on central bank data.

In its financial stability report earlier this month, the central bank highlighted the sharp rise in household debt in recent years, noting it needed to be monitored. Analysts have warned the jump could undermine Beijing’s efforts to spur consumer spending.

Outstanding short-term consumer loans rose 37.9 on-year in 2017 and the total household debt to GDP ratio was at 49 percent at the end of last year, the central bank said in the report.

MORE POLICY STEPS EXPECTED

Money supply growth was also markedly weak, in further evidence that companies are reluctant to make fresh investments as U.S. tariffs on Chinese goods add to uncertainties about the demand outlook at home.

“With credit growth still cooling, economic activity looks set to come under further pressure in the coming months,” Julian Evans-Pritchard, senior China economist at Capital Economics, said in a note.

Most analysts, however, don’t expect policymakers to cut benchmark rates any time soon, but could step up tax cuts and infrastructure spending to put a floor under the slowing economy.

China’s economic growth cooled to 6.5 percent in the third quarter year-on-year, its slowest pace since the global economic crisis, and pressures will build sharply from January year when higher U.S. duties are due to take effect.

Luo expects economic growth to slow further to 6.0 percent in the third quarter of 2019 before recovering.

Broad M2 money supply grew 8.0 percent in October from a year earlier - matching a record low hit this June. Analysts had expected M2 to rise 8.4 percent, edging up from September.

Outstanding yuan loans grew 13.1 percent from a year earlier, below expectations and easing from September.

To be sure, loan growth in China has looked more solid on a longer time horizon. New bank loans in the first 10 months of 2018 totalled 13.84 trillion yuan, up 17 percent from a year earlier and eclipsing last year’s full-year record of 13.53 trillion yuan.

But growth of China’s outstanding total social financing (TSF) slowed to 10.2 percent from a year earlier, again an all-time low, central bank data showed, suggesting the increased lending barely compensates for shrinking “shadow” loans.

Combined trust loans, entrusted loans and undiscounted bankers’ acceptances, which are common forms of shadow banking finance, fell by 267.5 billion yuan in October, following a slide of 2.3 trillion yuan in the first nine months.

One key reason for the decline was that local governments had maxed out their bond quotas after a rush of debt issuance in the third quarter, Capital Economics said.

After a lengthy clampdown, Beijing has been pushing local governments to spend on infrastructure projects again as part of its growth boosting measures. China will release investment data on Wednesday along with industrial output and retail sales.